Sunday, May 16, 2010

Why Increased US Government Spending Is Good

PCG minister Joel Hilliker's gone on a rhetorical splurge with his article The Upside-Down World.

I won't discuss everything here but I do wish to comment on one matter he brought up here.

In one place he writes, "In this [upside down] world, the solution to debt problems is increased spending".

Let me state again, the US Government is not like a private family that must acquire money to pay off their debts. The US Government is the source of money. Therefore they can do things we can't. They actually can make money.

As one MAuer1959 put in a comment in this article (Emphasis mine.):
The US government like all sovereign governments can always spend more than it earns – continuously and indefinitely – because the concept of “earning” is redundant. Unlike a household or a corporation, the sovereign government doesn’t need to earn to spend. That is a fundamental part of having a fiat currency system. This is NOT the case in Greece, or any other Euro zone country, because they are users of their currency, not issuers (which is done the by European Central Bank).

The US Federal Government might hide behind institutions (like debt-issuance mechanisms) and rhetoric (like we are running out of money, as our President often writes) but the operational reality is that behind all these smokescreens – the US government is not revenue-constrained.

That's why. It's not because they've "gone crazy". There are reasons why they behave that way.

It's called Keynesianism and has been around since the 1930s.

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